Once again speculation is appearing in the business media that Perpetual Limited (ASX: PPT) is looking to sell its Corporate Trust operating division that exists alongside its core funds management business and its private wealth financial advice business.
Ever since 2010 I can recall this rumour being reported in financial services circles and also after every time Perpetual has appointed a new CEO.
According to The Australian Perpetual has appointed Macquarie Group Ltd (ASX: MQG) and could net about $600 million from any sale. Its Corporate Trust business posted a net profit of $22.4 million for the six months ending December 31 2018 or $44 million on an annualised basis, which suggests it could attract a premium price around 14x net profits.
I'd be surprised if any suitor is prepared to pay anywhere near that much (Perpetual's total market value today is $1.86b) for a back office services business that enjoys much of its strength via its reputation of being a "Perpetual" business.
Commonly start-up fund managers or debt market issuers are attracted to the Perpetual brand as a responsible entity or debt issue trustee more than anything else. Therefore a sale could potentially see it lose a competitive strength in its brand value.
The one factor to suggest there may be more truth in the sale rumour the umpteenth time around is that Perpetual's former head of Corporate Trust, Chris Green, has now been promoted to the group chief financial officer role under a new chief executive.
As such it's possible the management reshuffle could mean Perpetual is genuinely interested in selling the business as a short-term sugar hit for the business, management, and its major shareholders.
Even if it were interested in selling the business, Perpetual's biggest problem is finding a buyer willing to pay a decent price.
According to The Australian, Melbourne-based Equity Trustees Ltd (ASX: EQT) (that carries some ex-Perpetual Corporate Trust staff among its number) or Sargon Capital are "being tipped as likely acquirers".
I'm not sure who's tipping them, but neither seem likely to bid given the sum of $600 million being touted among many other things.
A more likely candidate to buy it (in theory) anyway would be a giant asset servicing business (as part of the large investment banks) such as Pershing under BNY Mellon's asset serving division, or State Street's asset serving arm. Both of which could afford it and have existing relationships, but I doubt either would want this kind of business.
If an investment bank didn't pick it up that could leave an overseas or private equity suitor who could pull out costs before looking to sell on, but again I doubt private equity would be prepared to pay anything but bargain prices less than half the $600 million figure.
In other words I doubt we'll see a sale unless we see a surprise overseas suitor tempted by a cheap looking price as Perpetual's management chases short-term riches.
